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Cash-Strapped States Bet On Gambling

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Posted: 12/14/11 04:58 PM ET

Gambling is on a roll. Faced with mounting budget deficits, more states are expanding gambling options and loosening restrictions in a grab for revenue. Critics warn that the winnings are fool's gold, not worth the potential social and financial ills. But that's not stopping many states from getting a piece of the action.

Even once-reluctant Massachusetts recently approved the construction of three casinos and a slots parlor after 20 years of debate. Clyde Barrow, director of the Center for Policy Analysis at the University of Massachusetts-Dartmouth, predicts the casinos will collect $1.5 billion to $2 billion a year. Legislators said they anticipate receiving $300 to $400 million in tax revenue to chip away at the state's projected $1.8 billion 2012 deficit.

Casinos and lotteries make up at least 2 percent of revenue in states that have them, the Nelson A. Rockefeller Institute of Government recently reported, and have provided steady returns after a brief recession dip. That revenue has proven irresistible at a time when 46 cash-strapped states have made cuts in programs for health care, the elderly, the disabled, or in education since 2008, according to the Center on Budget and Policy Priorities. Massachusetts trimmed all of the above.

Massachusetts State Sen. Jamie Eldridge (D) fears the gambling push will come up snake eyes in the long run. He worries that patrons' discretionary income would go to casinos instead of local businesses, bleeding communities dry.

"It's a very flawed economic model," Eldridge said. "This is one of the worst decisions when the economy is bad."

Gambling usually provokes passionate debate on both sides, but few could dispute that the industry is on a winning streak. In 2009 and 2010 alone, 37 states pushed for increased gambling outlets, according to Sam Skolnik, the author of "High Stakes: The Rising Cost of America's Gambling Addiction." Meanwhile, casinos have stepped up their promotions to attract groups that tend to gamble more.

"One of the tragedies is that many of the gamblers enticed by this marketing ... can ill-afford to lose the money," Skolnik said.

Gambling advocates have marshaled their lobbying power and the promise of jobs and a quick profit stream to make giant inroads. In a wheezing economy, the conditions are ripe. While the federal government chokes on $972 billion of debt, states face a combined $95 billion deficit for 2012.

Revenue from Nevada's brick-and-mortar casinos has not stopped the state from sinking into 13 percent unemployment and a debt of $1.2 billion that is 37.4 percent of its operating budget. Still, the state's looking to beef up gaming, recently accepting applications from five firms to implement online poker for state residents. Nevada's move comes with supporters' hope that a federal ban against interstate gambling on the Internet will eventually be lifted. Jon Porter, a three-term former Republican congressman from Nevada, said tight regulations to weed out the under-aged and addicted can make Internet play work.

"I don't think gaming targets anyone," said Porter, an adviser for the Poker Players Alliance. "Whether you're gambling in a casino online or on Wall Street, certainly there are people who have a weakness and we try to prevent that from happening."

Many states are rolling the dice: New Jersey is mounting a constitutional challenge to a near-total federal ban on sports-betting. On the lottery front, Minnesota is allowing patrons to play online.

Missouri last week rolled out the welcome mat again for admitted problem gamblers. Gamblers who had voluntarily asked to be expelled from the state's casinos -- previously a life-long ban -- now may return after five years. Compulsive gamblers cost the country $6.7 billion a year, according to The National Council on Problem Gambling.

Yet, it's not as if gambling suddenly appeared. Forty-one states have casinos, according to the "American Casino Guide," and 43 have lotteries. But the urgency created by joblessness and foreclosure has made consumers more susceptible. Lotteries dangle the carrot of instant riches. Casinos offer the potential of a quick buck on the pull of a slot machine. Skolnik estimated that in 2007 alone, at the start of the recession, Americans gambled away $92 billion.

At the manufacturing end of the gambling industry, companies such as Bally Technologies and IGT are creating more slot attractions to entice patrons. Bally paid an undisclosed amount for the rights to create a Michael Jackson slot machine that is expected to draw huge lines when it debuts next summer. But the biggest potential moneymaker is the server-based slot machine. If a machine loses patrons at a certain time of day, casinos can change the machine's theme, value and payout at the push of a button. IGT operates server-driven slots in 50 casinos. Through anecdotal information, IGT estimated that the casinos are seeing an 18 percent increase in daily take after making the switch. Older casinos will have a tough time retrofitting the technology, but most of the new casinos will be buying in, said Steve Bourie, author of the "American Casino Guide."

All the bells and whistles aside, Barrow, the UMass-Dartmouth researcher, sees a lasting future for a casino-enhanced Massachusetts. The lottery will suffer temporarily but will bounce back, he predicted. Gambling-related crime will be less of an issue because theft and other crimes tend to happen on casino grounds and not in the surrounding neighborhoods, he said. As for assertions that casinos take money from the disadvantaged, Barrow answered that the lottery was already doing that at the state's 11,000 convenience stores. Casinos draw more customers above the median income, he said.

Barrow, who has been criticized for being a paid consultant for a New Hampshire golf course's casino study, said Massachusetts' plan will include hotel and entertainment venues to attract non-gamblers as well. He said that 20 percent of New Englanders who visit casinos do not place any bets.

But Eldridge isn't buying into the feel-good forecast. Since Gov. Deval Patrick (D) signed the casino construction bill on Nov. 22, promising that the commonwealth would not be compromised, Eldridge said he has refocused his efforts on ensuring that the legislation is not weakened to where it could further endanger community commerce and public safety.

A few states have bet against the gambling wave -- at least for the time being. Maine residents scrapped two casino-expansion referendums in November. The Illinois House also voted down an expansion bill, and New Hampshire Gov. John Lynch (D) vowed last month to veto any measure aimed at adding casinos.

Eldridge has seen a different outcome in his own state of Masachussetts, however. He said fellow lawmakers wanted to be able to say they're creating jobs and income for the state. Eldridge's office pointed to a 2000 study covering 19 years that concluded casinos create crime instead of merely relocating it. It also reported that 8 percent of crimes in a casino county can be directly linked to the casino.

The legislator fears Massachusetts has struck a Faustian bargain that isn't worth the risk. Eldridge said, "We've living in desperate times."

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